Even startups need a COO

May 27, 2011

I had an article published this week in VentureBeat where I talked about the role of the COO in an early stage software company. You will find the article here.

The article got chopped off a bit, or in better words, editorialized… So here’s the full article I wrote. Note the reference to Riding Shotgun, which is a great book on the topic.

It’s a widespread belief that early stage tech companies have no room for a chief operating officer (COO).

There are several drivers to that perception, most common of which are: (1) the CEO feels he/she needs to “be close to the business” and all aspects of the operation; (2) strategy and execution should not be separated and should all roll up to the CEO; (3) early stage companies are too small to have a COO; and (4) most unfortunately, the belief that recruiting a COO would be an admission of failure by the CEO.

I have been through a COO role myself, and during that time I had direct experience with the best and worst of the COO role. I’ve also observed the role in one of our portfolio companies where it was highly effective.

While I’m sympathetic to the arguments against hiring a COO, I do believe the role can be highly beneficial — and even necessary — in certain situations. In other words, the role of the COO should not be dismissed offhand just because a company is too early for it or the CEO’s ego is getting in the way.

I was recently referred to a great book on the topic, titled Riding Shotgun – The Role of the COO, by Nathan Bennett and Stephen Miles. In it, the authors lay out a list of motivations behind the COO position:

  1. To provide daily leadership in an operationally intensive business
  2. To lead a specific strategic imperative undertaken by management, such as a turnaround, major organizational change, or planned rapid expansion
  3. To serve as a mentor to a young or inexperienced CEO (often a founder)
  4. To balance or complement the strengths of a CEO
  5. To teach the business to the heir apparent to the current CEO
  6. To retain executive talent that other firms may be pursuing

When hiring a COO makes sense

Many early stage companies are founded by young and inexperienced CEOs. This is the nature of early stage companies, where a founder leverages the entrepreneurial spirit and technical skills to start up a venture. At the point of the startup, operational experience is largely irrelevant; to succeed as a startup, the founder often leverages the inexperience by being totally unencumbered by the past. This allows the founder to adapt and adjust to a highly dynamic and changing market environment.

But once the company passes the startup phase where the product, customer and distribution model have been identified, operational expertise starts to become more critical. At this point, the CEO needs to start the recruitment of a functionally experienced senior management team. Hiring, motivating, challenging and retaining such managers all require significant operational experience. This is where the founding CEO begins to falter, but it’s also when a COO role makes the most sense.

A COO’s value is designed to be complimentary to the CEO. The truth is that any CEO, no matter how experienced, cannot possibly cover the complex aspects of managing all the functions of a technology company. And why even try? It’s better to divide and conquer. By recruiting a COO, the CEO can focus on the aspects of the role that he/she truly excels at and enjoys the most.

Of course, these areas of interest will vary by CEO. For example, they may be more technical than operational, preferring to focus on product strategy and management (ala Steve Jobs). In that case, the COO can take over the rest of the operation, focusing on sales, marketing, support and operations. Then again, the CEO could also be more of an “outside” visionary, preferring to set the strategy and be the spokesperson while evangelizing with prospects, customers, analysts and bankers (ala Larry Ellison). This is when the COO can take on the actual execution of the strategy.

By thinking of it as a yin-yang division of responsibilities, the CEO-COO relationship can truly make 1+1=3 a reality.

Understanding the risks

Naturally, there are also certain risks involved with hiring a COO. Foremost is the misalignment of the roles and a lack of trust leading to division and disharmony. To ensure the success of the COO role, the CEO needs to work with the board of directors to develop the appropriate set of expectations, responsibilities and the required qualifications:

Establishment of trust — This is the absolute most important aspect of a successful CEO-COO relationship. Trust (in this case) begins with the CEO truly coming to terms with the need for a COO and having clarity as to why. The CEO must then convey that, with humility, to the prospective COO.

Finding the chemistry
— After trust, there needs to be chemistry. The CEO and COO must have mutual respect; they need to recognize and appreciate the skills that each brings, and be completely open with each other. Basically, they need to get along well and enjoy working together.

Defining the role
— Next, the role of the COO needs to be defined with extreme clarity. This comes back to the need for the role, and the mutual appreciation of it by the board, the CEO, the senior management team, and the prospective COO. I’ve personally found capable executive recruiters to be very valuable in helping the CEO develop the role with clarity. The recruiter tends to bring an objective view as well as the view of prospects.

Defining the rules of engagement
— In the final stages of recruiting a COO, I recommend that the CEO and COO get together and map out on a whiteboard the specific roles each will take. How is that different from the previous definition? Well, it depends on the capabilities of the final candidate. The previous definition refers to the ideal role based on the need (or deficiency) of the CEO. Here, the role needs to be further refined based on the skills of the prospect. This is where the yin and yang are melded into one circle. Part of that is the definition of the rules of engagement for managing and communicating internally with the senior team and the rest of the employees.

Make sure to read Riding Shotgun. It’s a great read and I believe it nails all the key points about the COO role. I also refer you to a blog post I wrote on the founder CEO inexperience: Mr. CEO – Would You Hire Yourself?. Another related read is The CEO Imperative – Build a Cohesive Senior Team

The Chief Executive Officer

Firas was previously a venture capitalist at Openview. He has returned to his operational roots and now works as The Chief Executive Officer of Everteam and is also the Founder of <a href="http://nsquaredadvisory.com/">nsquared advisory</a>. Previously, he helped launch a VC fund, start and grow a successful software company and also served time as an obscenely expensive consultant, where he helped multi-billion-dollar companies get their operations back on track.